Tata buys Jaguar and Land Rover

In a historic deal Tata Motors has purchased Jaguar and Land Rover from Ford Motor Company on March 26 at a price of US$ 2.3 billion (Rs 9,200 crore) making this the biggest deal in the Indian auto sector. This highly anticipated takeover, which the two companies have been negotiating for the last several months, is expected to be completed by June 2008. It involves Tata buying the two brands, along with their manufacturing plants and intellectual property rights, with the new company being called ‘Jaguar Land Rover’. The biggest benefit for Tata Motors from this deal will be the acquisition of two prestigious global brands which will help propel it into the big league of global automakers.

This was a result of Ford’s decision to explore strategic options for the Jaguar and Land Rover business in August 2007, as it wanted to focus on its core Ford brand and the 'One Ford' global transformation programme. Once the deal is closed, Ford will contribute approximately US$ 600 million (Rs 2,400 crore) to the Jaguar and Land Rover pension plans to cover their deficits.

Commenting on the agreement, chairman of Tata Sons and Tata Motors, Ratan N Tata, said, "We are very pleased at the prospect of Jaguar and Land Rover being a significant part of our automotive business. We have enormous respect for the two brands and will endeavour to preserve and build on their heritage and competitiveness, keeping their identities intact. We aim to support their growth, while holding true to our principles of allowing the management and employees to bring their experience and expertise to bear on the growth of the business." He also confirmed that his company will stick to the five-year investment plan for Jaguar and Land Rover’s UK factories in Halewood, Solihull and Castle Bromwich.

Alan Mulally, president and CEO of the Ford Motor Company, said, "Jaguar and Land Rover are terrific brands. We are confident that they are leaving our fold with the products, plan and team to continue to thrive under Tata's stewardship. Now, it is time for Ford to concentrate on integrating the Ford brand globally, as we implement our plan to create a strong Ford Motor Company that delivers profitable growth for all."

Ford continues support

As part of the transaction, Ford will continue to supply Jaguar and Land Rover for differing periods with powertrains, stampings and other vehicle components, in addition to a variety of technologies, such as environmental and platform technologies. Ford has also committed to provide engineering support, including research and development, plus information technology, accounting and other services. In addition, Ford Motor Credit Company will provide financing for Jaguar and Land Rover dealers and customers during a transitional period, which can vary by market, of up to 12 months.

The two companies believe this deal will support Jaguar and Land Rover's current product plans, while providing them with the freedom to develop their own capabilities in the future. Tata also clarified that it will not make any significant changes to the employment terms of Jaguar and Land Rover’s 16,000 employees based in the United Kingdom, which was a key factor in the company being successful at this takeover. Unions representing Jaguar and Land Rover workers are particularly pleased that Tata won’t be cutting jobs and will continue to source engines and transmissions from Ford for the next few years.

Ford executive vice-president, Lewis Booth, said that Ford will help Tata to integrate environment friendly or ‘green’ technology into the Jaguar and Land Rover product ranges. Booth also confirmed that Ford is not maintaining any equity stake in Jaguar and Land Rover, in contrast to the 15 percent holding it maintained in Aston Martin when it sold the company last year. He added, "this is a good agreement. It provides the Jaguar Land Rover management team and employees with the assurances needed to maintain their focus on delivering the best results for the business. I am confident that, under its new owner, Jaguar Land Rover will continue to build upon the significant improvements and product successes it has achieved in recent years.”

According to industry analysts, Ford has made significant progress with both brands in terms of quality and manufacturing technology, but these have not proved to be enough, particularly in the case of Jaguar. However, many of the improvements made by Ford will help Tata as it strives to make a success of these two brands.

Jaguar Land Rover CEO, Geoff Polites, welcomed the formal announcement of the deal by saying, “Jaguar Land Rover’s management team is very pleased that Ford and Tata Motors have come to an agreement today. Our team has been consulted extensively on the deal content and feels confident that it provides for the business needs of both our brands going forward." He added that "we have also had the opportunity to meet senior executives from Tata Motors and the Tata Group. They have expressed confidence in the team that has delivered significant improvements in Jaguar Land Rover’s business performance. We feel confident that we can forge a strong working relationship with our new parent company, and we look forward to a bright and successful future for Jaguar Land Rover."

Benefits to Tata Motors

Tata Motors expects that this takeover will enable it to develop capabilities in vehicle design, technology and distribution which would allow it to compete more effectively in the Indian and global automotive markets. However, analysts and investors have expressed concern about the takeover, since the Jaguar operation is actually making a loss at this time. Another big area of concern is that the US market is slipping into a recession. As a result, the demand for luxury cars and SUVs, like those made by Jaguar and Land Rover, will certainly be negatively affected. Although these concerns are relatively short term, the deal will certainly stretch Tata Motors both financially and management-wise. However, the company is very optimistic about the future prospects of these two brands, particularly since it has already seen the future product pipeline of both Jaguar and Land Rover.

One of the big hopes for Jaguar is its XF saloon which will be launched shortly in the UK and US markets. It has received a very strong initial reaction at motor shows and Jaguar says that it has already got 10,000 booking deposits for this saloon with 3,000 coming from the US and an equal number from the UK. In fact the UK is Jaguar’s largest market, contributing to 31 percent of the company's 60,485 unit total sales in 2007. The US follows closely behind, making up 25.9 percent of sales.

Future challenges

Among the challenges for Tata in the future will be the pressure to reduce the weight, fuel consumption and emissions of Jaguars and particularly Land Rovers as stricter European Union and US regulations come into effect. Hence Jaguar can rely on a new generation of V8 engines and probably Ford’s diesel range, but it will need a new range of Euro 6 emission norm-compliant engines for the future.

While the new brands don’t really have any direct synergies with Tata Motors’ existing line-up, the real benefits are likely to come from areas like shared component sourcing from existing Jaguar Land Rover suppliers. While Tata has said that it is keen to use the technology from its new brands for its existing and future products. This is likely to be a slow and difficult process that would also increase costs.

Critically, Tata Motors needs to start working on new models and powertrains as quickly as possible since the current range of new models that were developed by Ford in the last few years will need to be replaced in the next couple of years. This is going to be very challenging and expensive process for Tata and will be the true test for the Indian vehicle manufacturer. The company also needs to push hard in newer and emerging markets like China and India to ensure the long term growth of both the brands is sustainable.